School Finance 101: School Finance Reality vs. the Money Doesn’t Matter Echo Chamber

Bruce D. Baker

December 31, 2015

An eclectic mix of politicians, philanthropists, conservative (and not-so-conservative) think tanks and a select few scholars have, for decades, created an echo chamber for the claim that more money will not help improve America’s schools. The claim is most often backed by two facile evidentiary bases: First, that the U.S. spends far more than other developed nations on elementary and secondary education, but performs much worse on international assessments (OECD, 2012); and second, that US education spending has for decades grown dramatically while test scores have remained flat (Gates, 2011). A third prong of this argument is that U.S. states have done their part to target additional resources to higher poverty and urban school districts in the past few decades, and that these efforts have been unfruitful, as achievement gaps persist.

International comparisons of school spending and outcomes are fraught with imprecision, where elementary and secondary education expenses across nations include vastly different services and related expenditures: differences in whether or not employee pension and healthcare costs are included, differences in provision of special education services (through health versus education sectors) and differences in responsibility for extracurricular offerings or transportation expenses. Existing data from the Organization for Economic Cooperation and Development (OECD) on national education expenditures make no effort to achieve comparability and thus, cross national comparisons of rate of return on the education dollar suspect. Claims that U.S. education spending has climbed dramatically while outcomes have remained flat fail to address correctly the changes in competitive wages over time, changes in the needs of student populations, and ignore that in fact, outcomes have improved substantively. Finally, declarations that U.S. states have done their part to allocate additional funding to high poverty districts, by way of reference to national average spending figures, fail to acknowledge that in many U.S. States, school district state and local revenues per pupil remain inversely related to district poverty – with districts serving higher poverty student populations having systematically less revenue per pupil than districts serving lower poverty populations (Baker, Sciarra, Farrie, 2014). Further, many districts around the nation have twice (or greater) the poverty rate of surrounding districts, while having less than 90% of the state and local revenue per pupil (Baker, 2014).

Whether the “money doesn’t matter” echo chamber is partly to blame, as the economy has begun to rebound in many states, school finance systems have become increasingly inequitable, with levels of state support for public schools stagnant at best (Leachman & Mai, 2014). The recent recession yielded an unprecedented decline in public school funding fairness [targeting of funds to high poverty districts]. Thirty-six states had a three year average reduction in current spending fairness between 2008-09 and 2010-11 and 32 states had a three year average reduction in state and local revenue fairness over that same time period (Baker, 2014b). A more recent report from the Center on Budget and Policy Priorities revealed that through 2014-15, most state school finance systems had not yet begun to substantively rebound (Leachman & Mai, 2014).

In short, the decline of state school finance systems continues and the rhetoric opposing substantive school finance reform shows little sign of easing. Districts serving the neediest student populations continue to take the hardest hit. Yet, concurrently, many states are raising outcome standards for students (Bandeira de Mello et al., 2015) and increasing the consequences on schools and teachers for not achieving those outcome standards. States are asking schools to do more with less, not knowing whether resources were sufficient to begin with, and states are asking schools to achieve equitable, high outcomes, with inequitable resources.

Recent Literature on School Finance Reforms

The growing political consensus that money doesn’t matter stands in sharp contrast to the substantial body of empirical research that has accumulated over time, but which gets little if any attention in our public discourse (Baker and Welner, 2011). From 2014 through 2015, Kirabo Jackson, Rucker Johnson and Claudia Persico released a series of papers (NBER working papers) and articles summarizing their analyses of a uniquely constructed national data set in which they evaluate the long term effects of selective, substantial infusions of funding to local public school districts which occurred primarily in the 1970s and 1980s, on high school graduate rates and eventual adult income (Jackson, Johnson and Persico, 2015a). Virtues of the JJP analysis include that the analysis provides clearer linkages than many prior studies between the mere presence of “school finance reform,” the extent to which school finance reform substantively changed the distribution of spending and other resources across schools and children, and the outcome effects of those changes. The authors also go beyond the usual, short run connections between changes in the level and distribution of funding, and changes in the level and distribution of test scores, to evaluate changes in the level and distribution of educational attainment, high school completion, adult wages, adult family income, and the incidence of adult poverty.

To do so, the authors use data from the Panel Study of Income Dynamics, on “roughly 15,000 PSID sample members born between 1955 and 1985, who have been followed into adulthood through 2011.” The authors analysis rests on the assumption that these individuals, and specific individuals among them, were differentially affected by the infusions of resources resulting from school finance reforms which occurred during their years in K-12 schooling. One methodological shortcoming of this long term analysis is the imperfect connection between the treatment and the population that received that treatment.[1]The authors matched childhood address data to school district boundaries to identify whether a child attended a district likely subject to additional funding as a result of court-mandated school finance reform. While imperfect, this approach creates a tighter link between the treatment and the treated than exists in many prior national, longitudinal, or even state specific school finance analyses (Baker and Welner, 2011a).

Regarding the effects of school finance reforms on long term outcomes, the authors summarize their major findings as follows:

Thus, the estimated effect of a 22 percent increase in per-pupil spending throughout all 12 school-age years for low-income children is large enough to eliminate the education gap between children from low-income and non-poor families. In relation to current spending levels (the average for 2012 was $12,600 per pupil), this would correspond to increasing per-pupil spending permanently by roughly $2,863 per student.

Specifically, increasing per-pupil spending by 10 percent in all 12 school-age years increases the probability of high school graduation by 7 percentage points for all students, by roughly 10 percentage points for low-income children, and by 2.5 percentage points for nonpoor children.

For children from low-income families, increasing per-pupil spending by 10 percent in all 12 school-age years boosts adult hourly wages by $2.07 in 2000 dollars, or 13 percent (see Figure 4).

The JJP study is not the only study which shows such gains. It just happens to be the most recent, and first in a long time (since Card and Payne, 2002) high profile national study of its kind. As discussed in a 2012 report from the Shanker Institute, numerous other researchers have explored the effects of specific state school finance reforms over time (Figlio, 2004). Several such studies provide compelling evidence of the potential positive effects of school finance reforms. Studies of Michigan school finance reforms in the 1990s have shown positive effects on student performance in both the previously lowest spending districts (Roy, 2011), and previously lower performing districts (Hyman, 2013, Papke, 2005). Similarly, a study of Kansas school finance reforms in the 1990s, which also involved primarily a leveling up of low-spending districts, found that a 20 percent increase in spending was associated with a 5 percent increase in the likelihood of students going on to postsecondary education (Deke, 2003).

Three studies of Massachusetts school finance reforms from the 1990s found similar results. The first, by Thomas Downes and colleagues found that the combination of funding and accountability reforms “has been successful in raising the achievement of students in the previously low-spending districts.” (Downes, Zabel & Ansel, 2009, p. 5) The second found that “increases in per-pupil spending led to significant increases in math, reading, science, and social studies test scores for 4th- and 8th-grade students.”(Guryan, 2001) The most recent of the three, published in 2014 in the Journal of Education Finance, found that “changes in the state education aid following the education reform resulted in significantly higher student performance.”(Nguyen-Hoang & Yinger, 2014, p. 297) Such findings have been replicated in other states, including Vermont.

JJP also address the question of how money is spent. An important feature of the JJP study is that it does explore the resultant shifts in specific schooling resources in response to shifts in funding. For the most part, increased spending led to increases in typical schooling resources including higher salaries, smaller classes and longer days and years. JJP explain:

We find that when a district increases per-pupil school spending by $100 due to reforms, spending on instruction increases by about $70, spending on support services increases by roughly $40, spending on capital increases by about $10, while there are reductions in other kinds of school spending, on average.

We find that a 10 percent increase in school spending is associated with about 1.4 more school days, a 4 percent increase in base teacher salaries, and a 5.7 percent reduction in student-teacher ratios. Because class-size reduction has been shown to have larger effects for children from disadvantaged backgrounds, this provides another possible explanation for our overall results.

While there may be other mechanisms through which increased school spending improves student outcomes, these results suggest that the positive effects are driven, at least in part, by some combination of reductions in class size, having more adults per student in schools, increases in instructional time, and increases in teacher salaries that may help to attract and retain a more highly qualified teaching workforce.

In other words, oft-maligned traditional investments in schooling resources occurred as a result of court imposed school finance reforms, and those changes in resources were likely responsible for the resultant long term gains in student outcomes. Such findings are particularly consistent with recent summaries and updated analyses of data on class size reduction.

Recent National Trends in Schooling Resources

The figures here illustrate recent trends in education spending and staffing. The echo chamber tells us that education spending has grown dramatically for decades, doubling if not tripling over time, and that staffing has expanded dramatically as well, with pupil to teacher ratios plummeting persistently to all-time lows in recent years.[2]Concurrently, the echo chamber mantra asserts that NAEP scores have been “virtually flat,”(which they have not)[3]

Figure 1 shows that over the 21 year period explored herein, spending is up about $400, or about 6.1% over the entire period, and up only $200, or about 2.6% from 2003 to 2013.

Figure 2 shows that elementary and secondary education spending as a share of personal income is lower than any time in the past decade and lower than 1993.

Further, while staffing ratios increased from 1993 to 2003, staffing ratios in 2013 had returned to levels similar to what they had been in 2000.

So, put bluntly, we have not continued to pour more and more resources into schools over the past decade (and then some). We have not put more and more effort into our spending on k12 public education systems – depleting our national or state economies.

Figure 1

Current Operating Expenditures per Pupil Adjusted for Labor Costs

Current Spending from U.S. Census Fiscal Survey of Local Governments (census.gov/govs/school). Labor cost adjustment from Taylor (Education Comparable Wage Index, at: http://bush.tamu.edu/research/faculty/taylor_CWI/)

Figure 2

Direct Education Expense as a Share of Gross Domestic Product

State & Local Government Finance Data Query System. http://www.taxpolicycenter.org/slf-dqs/pages.cfm. The Urban Institute-Brookings Institution Tax Policy Center. Data from U.S. Census Bureau, Annual Survey of State and Local Government Finances, Government Finances, Volume 4, and Census of Governments (Years). Date of Access: (09-Dec-15 08:31 AM)

Figure 3

Teachers per 100 Pupils

Staffing data from NCES Common Core of Data, Public Education Agency Universe Survey (nces.ed.gov/ccd).

Closing Thoughts

As I’ve explained on recent posts:

Accomplishing higher outcome goals will cost more, not less than past school spending, and doing so with increasingly needy student populations even more.

But the current approach in public policy is to expect more while providing less. And perhaps even more offensive, to expect the same higher outcomes across children and settings while providing and/or permitting vastly inequitable resources (and then to malign and punish those lacking sufficient resources to get the job done).

Dominant reform strategies (restructuring teacher compensation, or “chartering”) may by the most generous analysis, provide opportunity for small gains in efficiency, though many of those gains may not be sustainable/scalable and some may exacerbate inequities.

Further, the above trends represent national averages over time and mask substantial variation both across states and across districts and schools within states. As we move further toward common standards and assessments across states, consequences of substantial variations in access to resources will likely become more apparent.

I will discuss in future posts how a) variations in the level of funding available in low income districts across states are associated with variations in the level of NAEP outcomes of those children across states and b) how the extent to which funding is targeted to lower income settings is associated with the extent to which NAEP outcome gaps are mitigated.

As I’ve explained previously, inequalities of education resources across settings matter greatly. Proclamations that Moneyball provides the solution for mitigating our nation’s achievement gaps are a cruel (and ignorant) joke.